Over the past two days, the notion of stagflation has gained notoriety despite only the faintest of signals that the economy is heading for such a condition. The reference is to simultaneous negative growth and price increases; an unexpected gain Wednesday in the Consumer Price Index heightened fears that stagflation is on the horizon.

But analysts point out that until there's a labor market reaction, then it's highly premature to begin bandying about terms like stagflation, or even recession for that matter.

"This is not by any stretch of the imagination a true, fundamental recession," says Michael Kresh, president of M.D. Kresh Financial Services of Islandia, N.Y. "Until we start seeing massive layoffs or severe wage pressure, these are just talking points, not fundamental realities."

Escalating food prices, brought about by the spike in raw material costs related to the demand for corn-based ethanol, have led to worries of out-of-control inflation.

"People lose sight of the fact that this is psychology," said Quincy Krosby, chief investment strategist at The Hartford. "The ultimate psychology is when you see people starting to horde. "When you see people buying chickens and stuffing them into their freezer because they're afraid that the chickens are going to be more expensive the next time they go to the market, that is the ultimate manifestation."

A Time to Buy

Still, it's undeniable that economic growth has at least slowed, and the CPI numbers are hard to dispute that even core prices, which strip out volatile food and energy prices, are rising.

Investors have reacted to the danger signs in a number of ways. Some have placed long-term bets on the more reliable Wall Street stalwarts, while others have moved to the safety of government bonds.

Commodities, particularly oil, grains and metals like platinum and gold, have drawn intense investor attention despite their risk. Money mangers, though, generally are discouraging such moves for all but the most sophisticated investors.

"We have a much more vibrant market in the commodities," Krosby says. "Commodities have become an asset class in themselves. Because of that, you've got quite a bit of speculation pushing up market prices."

For equities investors, she counsels companies that are capitalizing on consumer demand and dollar weakness, particularly health care and consumer staples.

Altria had been a strong performer in the tobacco sector, but recently was removed from the Dow Jones Industrial Average blue chip index. Reynolds American also historically has been a fairly steady dividend-paying stock, though it is 11 percent off its 52-week high. Analysts now are advising bargain hunting in an oversold market.

"You want companies that are selling overseas to companies that are still buying. The weaker dollar is still a strong element in these sales," Krosby says. "As long as global demand remains intact, you're going to see these companies do well."

Kresh is pushing his clients away from cash, after heavily increasing his position over the past 18 months, and back into equities.

"The more people are afraid, the better the opportunities are," he says. "I'm much more concerned when people are ecstatic and happy and think the world is perfect. ... The best time to buy is when there's blood in the streets."